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Flashcards in Exam 2 Deck (52):
1

3 categories of investments

  1. trading investments
  2. available-for-sale
  3. held-to-maturity

2

trading investments

held for short time & then sold -> gain/loss recorded

adjusted to market value @ end of yr

3

accounts receivable

amts owed by customers for selling goods/services

4

uncollectible accounts allowance

amt of uncollectibles is est

expense recorded as part of the adjusting process

contra-asset recorded that reduces account receivable on the balance sheet

5

contra-asset

always paired w/ asset & reduces its balance

6

bad debt expense

uncollectible accounts expense

7

methods to estimate uncollectibles

% of sales

aging-of-receivables

8

% of sales

expense is estimated based on credit sales

income statement approach

bad-debt expense

adjust allowance for uncollectible accounts by the amt of uncollectible account expense

9

aging-of-receivables

accounts receivable analyzed based on how long outstanding 

balance sheet approach

ending allowance for doubtful accout balance

adjust allowance for uncollectible accounts to the amt of uncollectible account receivable

10

creditor

party to whom money is owe; lender

11

debtor

party that owes money; borrower

12

interest

cost of borrowing $; %

13

maturity date

sum of principal & interest on note

14

principal

amt borrowed by debtor

15

term

length of time $ is borrowed

16

% of sales calculation

multiply % by revenue

17

aging-of-recievables calculation

  1. define sections
  2. multiply by %
  3. add those all up
  4. put in T-account
  5. solve for bad-debt expense

18

cost of goods sold (COGS)

what you paid supplier/it cost to construct good

19

journal entry

A image thumb
20

cost of goods avail/# of units avail

avg cost/unit

21

cost of good avail

beginning inventory + purchases

22

avg cost/unit X units sold

cost of goods sold

23

avg cost/unit x units on hand

ending inventory

24

FIFO

first-in, first-out

25

LIFO

last-in, first-out

26

lower-of-cost-or-market (LCM)

  • inventory should be reported @ whichever is lower - cost/market
    • market = current replacement cost
  • if cost is lower, not adjustment needed
  • if market is lower,
    • inventory is decreased to market value
    • COGS is increased

 

27

periodic inventory system

count items to determine quantity on hand

used for inexpensive items

used by small businesses

low cost

28

perpetual inventory system

running record of inventory kept by computer program

used by large businesses

scanners & bar codes used to record transactions

29

operating expenses

maintain/restore to working order

 

30

capital expenses

increase capacity/extend life

31

depreciation expense

method of setting aside cash to replace assets

32

depreciable cost

asset's cost - est residual value

33

SL

cost - residual

useful life in years

= depreciation expense

34

UOP

cost - residual

useful life, in units

= depreciation expense/unit

35

DDB

___2___

useful life

x book value

= depreciation expense

36

disposal/sale of plant asset

if cash received > book value -> gain (IS account; similar to revenue; increases net income)

if cash received < book value -> loss (IS account; similar to an expense; decreases net income)

A image thumb
37

intangible assets

represent special rights & benefits

have no physical form

very valuable in today's info-driven society

exs: patents & copyrights

38

categories of intangibles

  • finite lives that can be measured
    • amortized using SL method
    • intagible asset reduced by amortization
      • no Accumulated Amortization account
  • ​​indefinite lives
    • not amortized
    • tested annually for loss in value

39

current liabilities

obligations due w/in 1 yr of BS date

40

est warranty payable

warranty expense is est in same period as sale of product

matching principle

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41

contingent liabilities

potential liability that depends on future event arising out of past events

likelihood of future event is assessed as: probably, reasonbly possible, unlikely

42

probable likelihood

record liability if amt can be est

43

reasonably possible likelihood

include in notes to financial statements

44

unlikely likelihood

don't report

45

bonds

long-term liability

companies sell bonds to raise capital

46

bonds payable

groups of notes payable issued to multiple lenders, called bondholders

47

principal

amt borrowed; usually in $1000 units

also called face value/par value

48

maturity date

date bond is due; 5/10/20 yr terms are common

49

interest

company must pay bondholders interest in regular intervals over the term of the bond

50

underwriter

securities firm that purchased the bond issue & resells to clients

51

bond premium

issue price above face value

stated rate of interest is greater than market rate of interest

52

bond discount

issue price below face value

stated rate of interest is less than market rate of interest